The advice which follows relates to charities registered with the Commission. Charitable companies must also follow any laws relating to companies, for example Companies House guidance on submitting annual accounts during COVID-19.
At the present time, and until otherwise advised, no charity will be penalised by the Commission for missing its annual reporting deadline. This means that no charity will be marked as in default on the register of charities if they fail to meet their annual reporting deadline.
We would ask if charities find themselves in this position, they contact the Commission as soon as possible via email to email@example.com to keep us updated on their situation. You will not receive an acknowledgement to this email but your correspondence will be noted for our records.
Reporting on the impact of the COVID-19 pandemic
The impact of the COVID-19 pandemic is being felt in every walk of life and charities are no different. The annual report and accounts of a charity that have been submitted to the Commission may have been:
- signed off during the pandemic or
- where the financial year included the pandemic.
It is important to think about what the charity has been through and how the COVID-19 measures affected the charity.
This will help you present the information in the right context and avoid misunderstanding. Given the impact of COVID-19, the charity’s finances are not likely to look similar or comparable to the previous years.
The best place to start is with the trustees’ annual report (TAR). This is where the charity tells their story of what’s happened during the financial year. The charity trustees should explain how any unusual or unexpected events have affected the charity. For example:
- how COVID-19 has affected the operations and activities of the charity
- the impact on the beneficiaries
- the affect on the charity’s finances
- how governance arrangements were adapted to cope with the COVID-19 control measures
- what happened to the charity’s staff and volunteers.
COVID-19 will affect charities in different ways, many charities will experience financial challenges while coping with a surge in demand for their services. Others will not be able to carry out their usual activities but will still have incurred costs.
The financial challenges facing many charities will be varied:
- a lack of normal fundraising activities
- grant funding coming to an end and couldn’t be renewed
- the charity didn’t have any reserves to draw on to help deliver activities.
The charity accounts may show:
- a significant decrease in the charity’s income, which may or may not have a corresponding decrease in the amount spent by the charity
- a large increase in the amount spent on charitable activities
- reserves of the charity decreasing a lot as they are used to fund the charitable activities (meaning a decrease in the net assets figure on the balance sheet)
- changes in the value of investments as a result of changes in financial markets.
The impact of COVID-19 on the finances and operations charities will not be confined to just one year and will be seen in annual reports and accounts for some time. Good narrative explanations from charity trustees are key to helping readers understand the impact on the charity both now and in the future.
The approach you take to explain the impact COVID-19 has had on your charity needs to be appropriate and right for your organisation. The diversity of the charity sector means that one size does not fit all so there is no universal solution.
We recognise that many charities will be experiencing significant challenges in terms of using current resources, including reserves and thinking about the longer term sustainability of the charity. Some charities will have not been able to carry on any of their activities and will have no funds coming in.
As well as financial challenges, there are many operational challenges for charities. Some are unable to operate, others have an increase in demand for services, significant changes to the work the charity does, fundraising, volunteers, staff.
The Commission encourages charities to use the principles and practices of good reporting to increase transparency to the public and funders, as to the impact of Covid 19 in a reporting year, and to continue filing their annual monitoring return and accounts and reports with the Commission.
If your charity temporarily closed during the year and did not carry out charitable activities or faced other challenges as a result of the Covid 19 health pandemic, your TAR is how you can explain what you did and why.
Please note when preparing your charity’s annual monitoring return form, that the information requirements are streamlined by income. Charities that receive income of £10,000 or less during a reporting year are only required to complete Part A of the online annual monitoring return form.
Independent examination and audit
Under charity law all annual reports and accounts for registered charities are subject to independent external scrutiny from an independent examiner or auditor.
External scrutiny is an important part of the annual reporting process. It allows an independent review of the report and accounts, assuring the reader that the accounts set out the financial position of the charity with reasonable accuracy and can be relied upon to make decisions.
The UK Charity Regulators have produced new guidance for independent examinersto assist with some of the considerations arising due to the impact of COVID-19.
UK Charity Regulators have updated their joint guidance on Matters of Material Significance reportable to UK charity regulators.
The Financial Reporting Council have published a range of guidance to help auditors consider the impact of the pandemic on their work.
The SORP-making body has published guidance for trustees and preparers of charity accounts looking at the potential impact of the control measures to contain COVID-19 on financial reporting by charities. The guidance considers the implications for the trustees’ annual report, going concern and the alternative basis to going concern when preparing accounts under the SORP.
The SORP guidance highlights the need for charity trustees to explain in their narrative report the impact of COVID-19 on their charity, for example:
- the implications for the delivery of their activities and services
- any financial uncertainties regarding the charity’s financial sustainability and the steps being taken to address these and
- the impact on the charity’s ability to fundraise and how the trustees managed this situation.
These are good points for all charities to cover in their trustees’ annual report at this time, not just charities preparing accounts in line with the SORP.
In addition, the guidance highlights the relevant considerations about going concern to enable charity trustees to think this through appropriately and make the right decision for their charity.